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TMFJake wrote a wonderful and thoughtful blog post today, and I highly reccomend reading it. I thought I'd post my thoughts on the subject here because while his post inspired me to write this, what I have to say here doesn't really 'fit' with the direction I think he intened his thread to go.

 

My thoughts on asset allocation:

 

Like TMFJake, asset allocation has never been a strategy of mine, per se. Heck, it's never been a strategy of mine at all.

 

One of my favorite things to do is to take lessons I've learned from one arena and apply them to a different arena. My approach to asset allocation is a function of things I've learned from the realms of corporate strategy, and gambling (specifically card counting).

 

From the realm of corporate strategy, one of my professors once said something that immedaitely struck a chord with me. To paraphrase, he said, "A flawless strategy executed with mediocrity will invariably be outperformed by a mediocre strategy executed flawlessly."

 

From the realm of card counting (though I've never been a card counter myself), one of my best friends through childhood, with whom I still have contact, is probably one of the world's leading experts on the matematics of gaming and gambling. In talking about all of the different card counting methods out there he said (again, to paraphrase), "Much more important than which card counting method or system you use is how well you use your chosen method."

 

What does this have to do with asset allocation and the fact that it's something I've never really incorporated into my personal investing style?

 

Frankly, I know terribly little about asset allocation, even less about China and other emerging markets, nor do I have much knowledge about commodity markets (other than in broad, general terms). I choose, instead, to invest in my proverbial 'wheelhouse', U.S. equities.

 

Might U.S. equities underperform those of emerging markets? You betcha. But when I look at this issue, I'm reminded of what my professor, and my friend, had to say. I think I can do a far better job of execution with U.S. equities, so that's what I plan on sticking with, at least for the time being.

 

I'm not saying that I'll never seek international exposure, or limit myself exclusively to U.S. equities. Far from it. What I am trying to say, though, is that I'm not going to make it a point to do so as I think that would, at least given my present knowledge (which is ever changing), be investing outside of what Mr. Buffett would call my 'circle of competence'.

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